June 1, 2013

What does THIS mean for the Keystone XL pipeline?

It's been noted by advocates of the Keystone pipeline build from Canada to the Gulf Coast that if the pipeline isn't built the Canadian oil will be sent instead to markets in Asia, most particularly China. While the president continues to ignore and dither over the Keystone build, something happened to Canada's alternate option for its oil experts.

British Columbia, a fairly pristine province, decided it didn't want any part of the Northern Gateway pipeline ostensibly because of environmental protection concerns. The pipeline was intended to bring the oil from oil rich province of Alberta to the Pacific coast at Kitimat, British Columbia (well north of Vancouver) seaport for tanker shipping overseas. But the plan has hit a snag.

In its final submission to the Northern Gateway Pipeline Joint Review Panel, B.C. says it cannot support the project as presented because proponent Enbridge Inc. has been unable to address British Columbians’ environmental concerns.

“We have carefully considered the evidence that has been presented to the Joint Review Panel,” B.C. environment minister Terry Lake in a statement. “The panel must determine if it is appropriate to grant a certificate for the project as currently proposed on the basis of a promise to do more study and planning after the certificate is granted. Our government does not believe that a certificate should be granted before these important questions are answered …‘Trust me’ is not good enough in this case.”

While environmental organizations applauded the tough talk, B.C. also said its position on Northern Gateway is not a rejection of heavy-oil projects. It says all proposals, such as Kinder Morgan’s Trans Mountain Pipeline Expansion or David Black’s Kitimat Clean refinery project, would be judged on their merits.

While that seems like it's the end of the alternative pipeline and environmentalists have won, it isn't. Canada will not allow itself to be stuck sitting on a wealth of oil unable to pipeline it to the United States or China, both pipelines are likely to go through eventually. This is just a setback. Here's what it really means for both pipelines.

Firstly, not all opposition to the pipeline in British Columbia is environmental. There is no doubt an underlying profit-sharing motivation from British Columbia. The government is undoubtedly looking at royalties from Enbridge (the pipeline's owner) in order to allow the pipeline and to prepare for potential risks. In other words, it comes down to money - they want a bigger share of it. The government is using the environment as a bargaining chip right now. What that means for Keystone is a little more tricky.

Environmentalists in the United States now have a new weapon in their arsenal. They can argue that Canada won't even build pipelines in their own country so why should the United States allow these clearly 'unproven' pipelines to run through so many states? They can use that as cudgel to hit president Obama on the Keystone decision. While the president is not up for re-election, Democrats in 2014 and 2016 will be. If Obama cares about his liberal agenda more than his own legacy (which is debatable) he might just be swayed if he thinks the environmental constituency is larger than the union jobs constituency. Again, Obama prior to the election didn't make that call, and while he can now, he may try to figure out a way to thread the needle or at least stall as long as possible. He's voted present on this issue for some time now.

On the other hand, this presents a bargaining chip for those who would see the pipeline built in the U.S. After all, you could get concessions because you now know Canada's Plan B has been partially derailed.

In effect, this has turned all of this pipeline development into a five way poker match between Enbridge, British Columbia, TransCanada (the company behind the Keystone XL pipeline), environmentalists and the U.S. government. Who folds, who bluffs, and who eventually wins will have to wait until the hands get played.